As we enter the year 2023, we are likely to see a lot of changes in the world of investments. The COVID-19 pandemic has had a huge impact on the global economy, and it is likely that some investments that were popular in the past may not be viable options in the future. In this article, we will discuss the top 5 short-term investments that investors should consider in 2023 based on the gratuity formula.
Before we dive into the investments, let us first understand what the gratuity formula is. The gratuity formula is a calculation used to determine the amount of money that an employee is entitled to receive at the time of retirement or resignation. In India, the gratuity formula is calculated as follows:
Gratuity = (Basic salary + Dearness allowance) x 15 x Number of years of service / 26
The amount of gratuity that an employee is entitled to receive depends on their years of service. For each year of service, the employee is entitled to receive 15 days of basic salary plus dearness allowance.
Now, let’s take a look at the top 5 short-term investments that investors should consider in 2024.
1. Fixed deposits
Fixed deposits are a type of investment scheme offered by banks and other financial institutions. In a fixed deposit, the investor deposits a certain amount of money for a fixed period of time, and at the end of the maturity period, the investor receives the principal amount plus the interest earned.
Fixed deposits are considered to be safe investments as they offer a fixed rate of interest and are not subject to market fluctuations. However, the interest rates on fixed deposits are likely to be lower than other investment options like debt mutual funds.
2. Debt mutual funds
Debt mutual funds are a type of mutual fund that invests in fixed-income securities such as bonds, treasury bills, and corporate debt securities. These funds are considered to be relatively safe investments as they offer a regular income stream and are not as volatile as equity mutual funds.
In 2022, the RBI has hiked the repo rate by 50 basis points to 5.25%, and this has further increased in 2023. This means that the interest rates on debt instruments like bonds and fixed deposits are likely to increase, which in turn will be beneficial for debt mutual funds.
3. Equity mutual funds
Equity mutual funds are a type of mutual fund that invests in stocks of companies across various sectors. These funds are considered to be riskier than debt funds, but they can offer better returns in the long run.
In 2023, we may see the emergence of new sectors and industries due to the rapid technological advancements and changing consumer preferences. Investors can invest in equity mutual funds that focus on these emerging sectors to benefit from their growth potential.
4. National Pension System (NPS)
The National Pension System (NPS) is a voluntary retirement savings scheme introduced by the Government of India. The scheme is open to all citizens between the ages of 18 and 60. Investors can contribute a certain amount towards their NPS account, which is then invested in a mix of equity, debt, and government securities.
The NPS offers various tax benefits to investors, and the returns are market-linked. Investors can choose their own investment strategy based on their risk appetite.
5. Provident Fund (PF)
is a popular investment option designed to secure financial stability for individuals, particularly during retirement. It is a systematic savings scheme where both employers and employees contribute a fixed percentage of the employee’s salary, building a substantial corpus over time. The contributions accumulate with compound interest, offering a reliable long-term investment avenue. Provident Funds are known for their safety and steady returns, to claim PF and making them an attractive choice for risk-averse investors seeking a secure retirement plan.
These funds typically come with tax benefits, encouraging individuals to participate actively in building their financial future. With a dual focus on capital preservation and wealth accumulation, Provident Funds serve as a prudent investment option for those prioritizing financial security and stability in the later stages of life.